J.C. Penney's board of directors has ousted CEORon Johnson after only 16 months on the job as a risky turnaround strategybackfired and led to massive losses and steep sales drops.
Penney said late Monday in a statement that it has rehiredJohnson's predecessor, Mike Ullman, 66, who was CEO of the department storechain for seven years until November 2011.
The announcement comes as a growing chorus of criticsincluding a former Penney CEO, Allen Questrom, called for Johnson's resignationas they lost faith in an aggressive overhaul plan that included getting rid ofmost discounts in favor of everyday low prices and bringing in new brands.
The biggest blow came last week from Johnson's strongestsupporter, activist investor and board member, Bill Ackman, who had pushed theboard in the summer of 2011 to hire Johnson to shake up the dowdy image of theretailer. He reportedly told investors on Friday that Penney's execution "hasbeen something very close to a disaster."
On Saturday, Ullman received a phone call from Penney'schairman Thomas Engibous asking him to take back his old job, according toPenney spokeswoman Kate Coultas. The board met Monday and decided to fireJohnston.
Neither Johnson nor Ullman were available for comment.
Until early last week, some analysts thought the board wouldgive the former Apple Inc. and Target Corp. executive until later this year toreverse the sales slide. Johnson was in the midst of rolling out shops devotedto brands like Joe Fresh and home furnishings designer Jonathan Adler. The newshops, which started opening last year, had been faring better than the rest ofthe store.
"I truly believed that he had until holiday 2013,"said Brian Sozzi, CEO and chief equities strategist Belus Capital Advisers."Today's announcement is an indictment of his strategy."
Johnson's removal marks a dramatic fall for the executivewho came to Penney with much fanfare. There were lofty expectations for the manwho made Apple's stores cool places to shop, and before that, pioneeredTarget's successful "cheap chic" strategy by bringing in products bypeople such as home furnishings designer Michael Graves at discount-storeprices.
Few questioned Johnson's savvy when it was announced in June2011 that he was leaving his role as Apple's senior vice president of retail totake over the top job at Penney, a chain that had gained a reputation in recentyears of having boring stores and merchandise
Penney's stock price Monday evening showed investors'frustration with Johnson. When news began to leak after the market closed thatPenney was ousting Johnson, the stock, which had closed at $15.87 in theregular session, climbed nearly 13 percent to $17.88 in after-hours trading.But as pleased as investors were about getting rid of Johnson, they didn'tappear impressed with his replacement. After Penney announced Ullman would takeover, the stock reversed course falling as far as 11 percent from its regularclosing price, to $14.10 and 21 percent from its after-hours high.
Under Ullman, the chain brought in some new brands such asbeauty company Sephora and exclusive names like MNG by Mango, a Europeanclothing brand, but he didn't do much to transform the store's stodgy image orto attract new customers. He's expected to serve mostly as a stabilizing force,not someone who will make changes that will completely turn the company around.
"What they need is a little bit of stability andessentially adult supervision," said Craig Johnson, president of CustomerGrowth Partners, a retail consultancy. "(Ullman) did nip and tucksurgery," said Craig Johnson, president of Customer Growth Partners, aretail consultancy. "But this was a place that needed radicalsurgery."
Sozzi said he thinks that Ullman will only serve as aninterim CEO. He expects the Plano, Texas company's board will hand off the jobto another executive who may want to take the company private. Ullman isgetting a base salary of $1 million and the company didn't sign an employmentagreement, according to a Securities and Exchange Commission filing.
Johnson's future at Penny became uncertain after thedepartment store retailer reported dismal fourth-quarter results in lateFebruary that capped the first full year of a transformation plan gone wrong.Penney amassed nearly a billion dollars in losses and its revenue tumbledalmost 25 percent, to $12.98 billion, from the previous year's $17.26 billion.
Under Johnson, 54, Penney ditched coupons and most of itssales events in favor of everyday low prices. It began bringing in hipperdesigner brands such as Betsey Johnson and updating stores by installingspecialty shops devoted to brands such as Levi's to replace rows of clothingracks. Johnson's goal was to reinvent Penney's business into a trendy place toshop in a bid to attract younger, wealthier shoppers. But Johnson's plan turnedoff shoppers who were used to heavy discounting. Once-loyal customers have strayedfrom the 1,100-store chain. It hasn't been able to attract new shoppers toreplace them.
Initially, Wall Street supported Johnson's ideas. In a voteof confidence, investors drove Penney's stock up 24 percent to $43 afterJohnson announced his vision in late January 2012. But as Johnson's plansunraveled, Penney's stock lost more than 60 percent of its value. Credit ratingagencies downgraded the company deeper into junk status. On Monday, the stockclosed down about 50 percent from when Johnson took the helm.
In one of the biggest signs of the board's disapproval ofJohnson's performance, Johnson saw his 2012 compensation package plummet nearly97 percent to about $1.9 million, according to a Securities and ExchangeCommission filing last week. He didn't get any stock or option awards, or abonus. In 2011, he had received a stock award worth $52.7 million on the day itwas granted. The award was given to Johnson after he was named CEO and made a$50 million personal investment in the company.
In another blow to Johnson's turnaround strategy, VornadoRealty Trust, one of Penney's biggest shareholders, sold more than 40 percentof its stake in the company last month. The company's chairman and CEO, SteveRoth sits on Penney's board.
During the fourth quarter that ended Feb. 2, Penney's losswidened to $552 million, or $2.51 per share, up from a loss of $87 million, or41 cents per share a year ago.
Total revenue dropped 28.4 percent to $3.88 billion. .
Penney's results for the full year were even more staggering.For the fiscal year, Penney lost $985 million, or $4.49 per share, comparedwith a loss of $152 million, or 70 cents per share, in the year ended January28, 2012.
While acknowledging that Penney made some mistakes duringthe fourth-quarter conference call with investors, Johnson said Penney wouldstart offering sales in stores every week — about 100 of the 600 or so thechain offered each year prior to his turnaround plan. And it would bring backcoupons.
Critics have said that one Johnson's greatest missteps wasthat he didn't test the pricing plan with shoppers before rolling out thestrategy. He argued that testing would have been impossible because the companyneeded quick results and that if he hadn't taken a strong stance againstdiscounting, he would not have been able to get new stylish brands on board.
During his tenure, Johnson had spoken of being around forthe long-haul and referred to his plan as a multiyear strategy. But thecompany's board wasn't willing to wait to see how those plans would turn outafter racking up such severe losses so quickly. Now, that Johnson is out, theworry on Wall Street is that Ullman won't be able to turn around business fastenough to finance the transformation of its stores. In November, Penney saidthat it would end the latest fiscal year with $1 billion in cash. Penney windedup ending the year with $930 million in cash, which was better than analystshad feared but below the company's target.